[Federal Register Volume 73, Number 213 (Monday, November 3, 2008)]
[Rules and Regulations]
[Pages 65241-65246]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-26141]



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Rules and Regulations
                                                Federal Register
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Federal Register / Vol. 73, No. 213 / Monday, November 3, 2008 / 
Rules and Regulations

[[Page 65241]]



OFFICE OF PERSONNEL MANAGEMENT

5 CFR Part 591

RIN 3206-AL37


Nonforeign Area Cost-of-Living Allowance Rates; Alaska

AGENCY: U.S. Office of Personnel Management.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The U.S. Office of Personnel Management (OPM) is reducing the 
cost-of-living allowance (COLA) rates received by certain white-collar 
Federal and U.S. Postal Service employees in Anchorage, Fairbanks, and 
Juneau, Alaska. The rate reductions are the result of living-cost 
surveys conducted by OPM in Alaska and the Washington, DC area in 2006. 
Based on the survey results, OPM is reducing the COLA rates for 
Anchorage, Fairbanks, and Juneau from 24 percent to 23 percent. OPM is 
also issuing a minor clarification regarding the Alaska COLA area 
boundaries to make clear the 50-mile area radius is by the shortest 
route using paved roads.

DATES: Effective date: December 3, 2008. Implementation date: First day 
of the first pay period beginning on or after December 3, 2008.

FOR FURTHER INFORMATION CONTACT: J. Stanley Austin, (202) 606-2838; 
fax: (202) 606-4264; or e-mail: [email protected].

SUPPLEMENTARY INFORMATION: Section 5941 of title 5, United States Code, 
authorizes Federal agencies to pay cost-of-living allowances (COLAs) to 
white-collar Federal and U.S. Postal Service employees stationed in 
Alaska, Hawaii, Guam and the Northern Mariana Islands, Puerto Rico, and 
the U.S. Virgin Islands (USVI). Executive Order 10000, as amended, 
delegates to the Office of Personnel Management the authority to 
administer nonforeign area COLAs and prescribes certain operational 
features of the program. OPM conducts living-cost surveys in each 
allowance area and in the Washington, DC area to determine whether, and 
to what degree, COLA-area living costs are higher than those in the DC 
area.
    As required by Sec.  591.223 of title 5, Code of Federal 
Regulations, OPM conducts COLA surveys in the Alaska, Pacific, and 
Caribbean areas on a 3-year rotating basis, and in the Washington, DC 
area on an annual basis. OPM sets the COLA rate for each area based on 
the results of these surveys. For areas not surveyed during a 
particular year, OPM computes interim adjustments to COLA rates based 
on the relative change in the Consumer Price Index (CPI) for the COLA 
area compared with the Washington, DC area. (See 5 CFR 591.224-226.)
    OPM adopted the COLA survey methodology pursuant to the stipulation 
for settlement in Caraballo et al. v. United States, No. 1997-0027 
(D.V.I.), August 17, 2000. Caraballo was a class-action lawsuit in 
which the plaintiffs contested the prior methodology OPM used to 
determine COLA rates. In the Caraballo settlement, the parties agreed 
that if the Government adopted and maintained certain changes in the 
COLA program, the plaintiffs would be barred from bringing suit over 
these issues. The stipulation for settlement is available on OPM's Web 
site at http://www.opm.gov/oca/cola/settlement.asp.
    Before the settlement, the parties entered into a memorandum of 
understanding under which they engaged in a cooperative process to 
study living-cost and compensation issues. The research was exhaustive 
and covered essentially all aspects of the COLA program. A summary of 
that research is available on OPM's Web site at http://www.opm.gov/oca/cola/research.asp.
    Exhibit A of the Caraballo settlement agreement lists 26 ``Safe 
Harbor Principles'' that outline the changes to which the parties 
agreed. These principles formed the basis for a new COLA methodology, 
which OPM incorporated into its regulations. In developing these 
regulations, OPM consulted with the Survey Implementation Committee, 
which was established under the Caraballo settlement and is composed of 
representatives of the parties in Caraballo. The Survey Implementation 
Committee in turn consulted with the Technical Advisory Committee, 
which was also established under the Caraballo settlement and comprises 
three economists with expertise in living-cost comparisons. OPM 
published proposed regulations detailing the new methodology for notice 
and comment in the Federal Register on November 9, 2001, at 66 FR 
56741, and final regulations on May 3, 2002, at 67 FR 22339, to 
implement the new methodology. The Survey Implementation Committee and 
the Technical Advisory Committee worked closely with OPM in preparing 
for and implementing the first series of post-settlement COLA surveys.

2006 Alaska Survey

    OPM conducted living-cost surveys in Anchorage, Fairbanks, Juneau, 
and the Washington, DC, area in the spring of 2006. On January 3, 2008, 
at 73 FR 774, we published the results of these surveys in the 2006 
Nonforeign Area Cost-of-Living Allowance Survey Report: Alaska and 
Washington, DC, Areas.
    As described in the 2006 survey report, we compared the results of 
the COLA area surveys with the results of the DC area survey to compute 
a living-cost index for each of the Alaska COLA areas. Table 1 shows 
the final 2006 Alaska survey living-cost indexes. These indexes 
indicate reductions in the COLA rates for Anchorage, Fairbanks, and 
Juneau. OPM's regulations at 5 CFR 591.228(c) limit COLA rate 
reductions to 1 percentage point in a 12-month period; therefore, we 
are reducing the rates in Anchorage, Fairbanks, and Juneau from 24 
percent to 23 percent.

                   Table 1--2006 Alaska Survey Indexes
------------------------------------------------------------------------
                       Allowance area                           Index
------------------------------------------------------------------------
Anchorage..................................................       109.81
Fairbanks..................................................       118.90
Juneau.....................................................       120.08
Rest of the State of Alaska................................       132.82
------------------------------------------------------------------------

Area Boundary Clarification

    We are also issuing a clarification to 5 CFR 591.207 regarding the 
Alaska COLA-area boundaries to make clear the 80-kilometer (50-mile) 
area radius is by the shortest route using paved roads when available, 
as measured from the

[[Page 65242]]

Federal courthouse to the official duty station. We believe the prior 
regulations should not have been interpreted differently, but issue 
this clarification to assist agencies when alternate interpretations 
are presented.

Discussion of Comments

    We published a notice of proposed rulemaking regarding the planned 
reduction in the COLA rates for Anchorage, Fairbanks, and Juneau and 
the area-boundary clarification in the Federal Register on January 3, 
2008, at 73 FR 772. We address the comments we received in response to 
the proposed rule in the discussion that follows.

Locality Pay

    A number of commenters wrote in support of replacing the 
nonforeign-area COLA with locality pay. Three commenters believed OPM 
should not reduce Alaska COLA rates, while backing a legislative 
initiative to implement locality pay in the COLA areas. One commenter 
asked why a transition to locality pay has not already begun. Another 
commenter said OPM should consider the locality pay received by Federal 
employees in the Washington, DC, area in determining COLA rates for the 
nonforeign areas. Several commenters noted that, unlike the nonforeign-
area COLA, locality pay is included in computations for retirement and 
the Thrift Savings Plan.
    The Federal Employees Pay Comparability Act of 1990 (FEPCA) 
authorizes locality pay only for Federal employees in the contiguous 48 
States and Washington, DC. We cannot consider DC-area locality pay in 
determining rates outside the 48 States because doing so would be 
equivalent to extending locality pay in these areas without authority. 
Additionally, we cannot credit COLAs in the retirement calculation 
because 5 U.S.C. 8331(3) and 8401(4) exclude allowances from base pay 
for Federal retirement purposes. Changes in law would be required to 
extend locality pay to Federal employees in the COLA areas or to 
include COLAs in base pay for Federal retirement purposes.
    Congress is considering legislation that would replace the 
nonforeign-area COLA with locality pay. Because we are not able to 
forecast whether legislation on this issue will pass or how long the 
legislative process will take, we must proceed with COLA rate changes 
in accordance with section 5941 of title 5, U.S. Code, and the 
Caraballo settlement.

Living Costs

    Most of the commenters believed the surveys did not fully consider 
the expenses incurred in the allowance areas. Many noted expenses in 
the Alaska COLA areas that they felt were either not accounted for in 
the surveys or that affected the accuracy of the results of the 
surveys. These expenses included--

--Goods and services typically found in the Washington, DC, area that 
are not available in the allowance areas, the cost to obtain these 
goods and services in the allowance areas (e.g., shipping fees), and 
the quality of the goods and services that are available;
--Goods and services typically purchased in the allowance areas that 
are not typically purchased in the Washington, DC, area;
--Variations in spending patterns between the Washington, DC, area and 
the allowance areas;
--Hardships encountered under adverse climate conditions;
--Climate influences on purchase of clothing, automobiles, automobile 
maintenance, insurance, and other goods and services;
--Housing and utility prices as affected by climate and availability;
--The frequency and cost of air travel in the allowance areas;
--The additional need for travel, lodging, and out-of-pocket expenses 
for quality medical care in the allowance areas; and
--Travel and other costs to send children to private schools.

    As required by section 5941 of title 5, U.S. Code, we compare 
living costs in the COLA areas with living costs in the Washington, DC 
area to determine COLA rates. We measure costs using the methodology 
stipulated in the Caraballo settlement. We conduct on-site surveys in 
each survey area and collect more than 4,000 prices on over 300 items 
representing typical consumer purchases. We collect prices at over 900 
outlets, including grocery, hardware, electronics, and department 
stores, as well as automobile dealers, doctors, dentists, insurance 
companies, and many other providers of goods and services. We collect 
these prices in both the COLA and DC areas to use in the price 
comparisons that determine each area's COLA rate.
    The comparisons result in indexes that reflect how COLA area prices 
measure against DC area prices over a given period of time. These 
indexes do not necessarily correspond to rising (or falling) prices in 
the COLA areas. For instance, if living costs in a COLA area rise, but 
living costs in the DC area rise more sharply, the COLA rate for the 
area would decrease. Conversely, if COLA area living costs decrease, 
but DC area living costs decrease more sharply, the COLA rate for the 
area would increase.
    In consultation with representatives of Alaska-area employee 
organizations and agencies on the Anchorage, Fairbanks, and Juneau COLA 
Advisory Committees, we select representational items to be surveyed 
under nine categories of expenses: Food, Shelter and Utilities, 
Household Furnishings and Supplies, Apparel, Transportation, Medical, 
Recreation, Education and Communication, and Miscellaneous. We divide 
these categories into subcategories and select a sufficient number of 
items to represent each subcategory in the living-cost surveys.
    Recognizing the difficulty in surveying all employee costs in the 
allowance areas, the Caraballo settlement prescribed adjustment factors 
to be added to the price indexes for each COLA area. These factors 
reflect differences in need, availability of and access to goods and 
services, and quality of life in each of the COLA areas. The settlement 
set the adjustment factor for Anchorage at 7.0, for Fairbanks at 9.0, 
for Juneau at 9.0, and for the Rest of Alaska at 9.0.
    We believe the COLA methodology and surveys comply fully with the 
Caraballo settlement, include ample representational items, and provide 
sufficient adjustment factors to account for cost differences due to 
climate, remoteness, and geographical and cultural diversity. We worked 
closely with the Survey Implementation Committee, the Technical 
Advisory Committee, and the survey-area COLA Advisory Committees to 
develop the survey procedures, items and outlets to be surveyed, and 
analytic techniques for the price comparisons.

Rising Prices

    A number of commenters noted that certain costs have increased 
since we conducted the 2006 Alaska survey. They cited the cost of 
gasoline, housing, utilities, shipping, airline tickets, grocery items, 
medical needs, automobile expenses, recreational costs, various fees 
and taxes, and other items. Several commenters believed we should 
survey more frequently. We recognize that prices for various items will 
increase in the COLA areas and/or the DC area between surveys. We 
collect prices in each survey area every 3 years on a rotating basis 
according to a schedule agreed upon by the parties in the Caraballo 
settlement. As noted previously, we adjust area price indexes in non-
survey years based on the relative change in the CPI for the COLA area 
compared with the CPI for the Washington, DC area. These

[[Page 65243]]

adjustments are designed to account for price fluctuations between 
surveys.

Energy Costs

    Many commenters felt we should increase Alaska COLA rates to 
account for rising electric and heating oil costs. While DC area energy 
costs have also increased as a result of escalating fuel prices, we 
examined the effect recent Alaska energy rates would have on the area 
indexes. The results indicated slightly higher indexes in Alaska, but 
would not raise the indexes sufficiently to overcome the COLA rate 
reductions. The 2008 interim CPI adjustment indexes will reflect any 
increases in energy costs in Alaska compared to the DC area.
    Several commenters noted that heating costs are higher in Alaska 
than the DC area because the Alaska climate is colder for longer 
periods of time. We discuss the energy utility model used to determine 
the price of utilities in section 4.2.4 of the Alaska survey report 
published at 73 FR 774. The utility model reflects the higher home 
energy costs in Alaska. As shown in Appendix 5 of the report, we 
determine energy utility indexes for the COLA areas based on energy 
usage over a 12-month period.

Geographic Coverage

    One commenter said the cost of living in Girdwood, AK, which is 40 
miles outside of Anchorage, is significantly higher than in Anchorage. 
The commenter felt the Girdwood cost of living is not adequately 
reflected in the Anchorage survey and that we should conduct a separate 
survey in Girdwood. We review outlets for surveying item prices in the 
Anchorage COLA area with the Anchorage COLA Advisory Committee prior to 
our surveys. We are open to recommendations from the Committee for 
surveying a selection of items in Girdwood. We cannot conduct a 
separate survey in Girdwood. Under 5 CFR 591.206(b), the head of a 
department or agency must submit a request to OPM to initiate any 
reconsideration of the definition of a COLA area. One of the criteria 
for defining a COLA area is the concentration of Federal employees in 
the area. OPM's Central Personnel Data File shows the Federal 
population in Girdwood to be small.
    One commenter said the Juneau cost of living is higher than 
Anchorage and Fairbanks because of the lack of road access. Another 
commenter said Fairbanks cannot be compared to Juneau, Anchorage, or 
the DC area because of its colder winters. We conduct separate surveys 
in each allowance area and collect local prices reflecting actual costs 
to consumers in each area. We compare each COLA area's living costs to 
living costs in the DC area, as required by law. Based on this 
comparison, we produce a distinct index for each COLA area. The 2006 
Alaska surveys indicated an index of 109.81 for Anchorage, 118.90 for 
Fairbanks, and 120.08 for Juneau.
    One commenter noted it was more expensive to live in Anchorage than 
Los Angeles, San Francisco, or New York, where the locality pay rates 
exceed the Anchorage COLA rate. The law that authorizes the payment of 
COLAs in Alaska and the other nonforeign areas requires that we compare 
living costs in the nonforeign areas with living costs in the DC area. 
The Federal Employees Pay Comparability Act of 1990 does not authorize 
locality pay for areas outside the contiguous States and Washington, 
DC. Locality pay is not a cost-of-living allowance, but is based on a 
comparison of Federal salaries with non-Federal salaries on a locality 
basis.
    The same commenter said we should raise the COLA rate for the Rest 
of the State of Alaska allowance area and return Anchorage to its 
former 25 percent rate based on the high cost of living in each area. 
Another commenter questioned why we were reducing the Juneau COLA rate 
when Ketchikan, which the commenter said had less expensive housing and 
was closer to Seattle along shipping lines, was not being reduced. The 
current COLA rate for the Rest of the State of Alaska, which includes 
Ketchikan, is 25 percent. We cannot raise this rate because 5 U.S.C. 
5941 limits COLAs to no more than 25 percent of basic pay. As permitted 
under the Caraballo settlement, we do not generally survey the Rest of 
the State of Alaska COLA area, but determine its COLA rate using 
alternative indicators (e.g., cost information published by the 
University of Alaska). In the 2006 Alaska survey, we determined the 
COLA index for the Rest of the State of Alaska area to be 132.82 
(converting to an uncapped COLA rate of 33 percent). In the 2003 Alaska 
survey, we had determined the index to be 134.80 (or 35 percent). While 
the index has decreased since 2003, it remains above 1.25 (25 percent) 
and therefore continues to support the maximum 25 percent COLA rate.
    The index for Anchorage declined from 112.63 in 2003 to 109.81 in 
2006. The index for Juneau increased from 118.34 in 2003 to 120.08 in 
2006. The index for Fairbanks increased from 115.26 in 2003 to 118.90 
in 2006. Actual COLA rates are currently higher in Alaska because the 
Caraballo settlement established rates based on historical levels in 
the areas. The COLA rates in Alaska remain higher than indicated by 
OPM's surveys because we reduce rates by no more than 1 percent in a 
12-month period.

Military Raises

    Four commenters questioned why we were reducing civilian COLAs in 
Alaska when military co-workers were receiving raises. The civilian and 
military COLAs are governed under separate laws and are computed under 
different methodologies. Two major differences are that the military 
COLA does not use the DC area as a base for comparison and does not 
include housing expenses. The methodology for the civilian nonforeign 
area COLA derives from 5 U.S.C. 5941, Executive Order 10000, and the 
Caraballo settlement.

Impact of Reductions

    The same four commenters expressed concern about the impact the 
COLA reductions in Anchorage, Juneau, and Fairbanks would have on 
employees, their families, and the Alaska economy. A number of 
commenters expressed similar concerns regarding recruitment and 
retention of employees in the Alaska COLA areas. We set COLA rates in 
accordance with 5 U.S.C. 5941, which authorizes COLAs based on living 
costs in the nonforeign areas that are substantially higher than living 
costs in the DC area. We cannot adjust COLA rates for other reasons, 
such as for recruitment and/or retention purposes. However, we attempt 
to minimize the impact on employees and on the local economy by 
reducing COLA rates by no more than 1 percentage point in a 12-month 
period. To address recruitment and retention problems, agencies may 
offer recruitment, retention, and relocation incentives and/or special 
salary rates. OPM's Web site at http://www.opm.gov/oca/pay/index.asp 
provides information on various pay authorities to assist with agency 
recruitment and retention efforts.

Price Substitutes

    One commenter disagreed with the use of prices from Anchorage or 
Fairbanks for Juneau. As provided by the Caraballo settlement (under 
Safe Harbor Principle 11), we use prices from adjacent areas in limited 
circumstances when local prices for individual items are unavailable. 
We minimize the necessity for doing this by substituting items in the 
local area survey and adding the substituted items to the DC survey. 
However, we are not always able to locate the substituted items in the 
DC area. We tested the effect on the Juneau

[[Page 65244]]

COLA index of dropping the prices we used from Anchorage and Fairbanks 
and found it slightly lowered the index.

Private Education

    The same commenter noted that there were no private K-12 schools in 
Juneau and suggested we include the cost to send a child to a 
residential private school outside Juneau in the private education 
price. We surveyed K-12 private education in the Alaska COLA areas and 
the DC area and computed an average tuition price that reflected all 
grade levels. Because a large majority of children in the Alaska survey 
areas attend public schools, we apply ``use factors'' to reflect the 
relative extent to which Federal employees make use of private 
education in the COLA and DC areas. We described the process used for 
K-12 private education in the Alaska areas in the Alaska survey report 
at 73 FR 777. The adjustment factor for an area covers any additional 
costs involved with sending children to private schools.

Catalog Pricing

    The commenter also suggested we survey more items by catalog and 
include shipping fees. The commenter also believed we should include 
shipping for items that have to be returned. The commenter believed 
these costs to be measurable and did not feel they should be included 
in the adjustment factor for the area. We currently survey a select 
number of items in each area by catalog and include shipping in the 
total price of the items. We review outlets for surveying item prices 
with the local area COLA Advisory Committees prior to data collection. 
We are open to surveying more items by catalog at the recommendation of 
the COLA Advisory Committees. Regarding the inclusion of shipping costs 
for returned items, we do not believe the frequency of returns can be 
measured accurately, either in the allowance areas or the DC area. The 
Caraballo settlement specifically provided for the adjustment factor, 
which reflects ``differences in need, availability of and access to 
goods and services, and quality of life,'' to cover costs such as 
these.

Insurance

    The same commenter asked if mudslide and avalanche coverage is 
included under the catastrophic coverage we specify for renter 
insurance. We use a rental equivalence approach to determine shelter 
costs. The rental equivalence approach compares the rental values of 
homes. Home insurance is a cost to the owner and therefore is implicit 
in these values. However, we do survey renter insurance and include the 
price of any special riders necessary to cover earthquake and hurricane 
damage. We do not specify mudslide or avalanche coverage as we have had 
no indications that this coverage is commonly purchased, even in 
Juneau. We would be open to including this coverage based on reliable 
data showing residents in a particular COLA area often purchase renters 
insurance with mudslide and/or avalanche riders.

Medical Services

    A number of commenters noted that doctor, dental, and vision care 
are more expensive in the COLA areas. Several commenters said it was 
necessary to travel outside the area to obtain some medical services. 
These commenters felt the survey should include travel costs in these 
circumstances. We survey the prices of several medical services 
(including dental services) and items in each COLA area and in the DC 
area. The medical services index reflects any higher prices in the 
Alaska COLA areas. We do not attempt to price or quantify the 
availability of medical services. We consider this to be part of the 
adjustment factor we add to the price index to reflect differences in 
need, access to, and availability of goods and services, and quality of 
life in the COLA areas relative to the Washington, DC, area.
    One commenter noted that there were no Health Maintenance 
Organizations (HMOs) in Anchorage. As described at 73 FR 778, OPM 
compared average health insurance premium costs in the COLA area with 
average health insurance premium costs in the DC area. Therefore, the 
health insurance premium index reflects higher local costs to the 
extent that an area has only higher cost plans available (i.e., to the 
extent HMOs are not available).

Automobile Costs

    Several commenters said we should survey two sets of automobile 
tires in Alaska because snow tires are necessary during winter months. 
We survey both studded snow tires and all-season radial tires in Alaska 
to compute an average price for tires. As described at 73 FR 778, we 
compare this price with the average price for all-season radial tires 
in the DC area. We average tire prices in Alaska because each set of 
tires is not in use year round. We include mounting, balancing, new 
stems, stud fee (in Alaska), tire disposal fee, and taxes in the price 
for each set of tires. We consider other possible tire-related costs, 
such as wear and rotation frequency, to be covered by the adjustment 
factor for the area.
    One commenter felt we should account for the need for head bolt 
heaters in Fairbanks. We included the cold-weather package in the price 
for the Chevrolet Silverado we surveyed. We include engine block 
heaters and other cold weather equipment or accessories to the extent 
they are standard additions at COLA area dealerships.

Housing Costs

    Two commenters said housing prices are higher in Alaska than in the 
lower 48 States. Two other commenters said increased military 
deployments and pipeline and other non-Federal activities were reducing 
the available housing in Fairbanks and Anchorage and raising housing 
costs. As noted previously, the Caraballo settlement prescribed the 
methodology we use to conduct COLA surveys and set COLA rates. The 
settlement stipulates that we use a rental equivalence approach to 
estimate shelter costs and a hedonic regression approach to compare 
housing of similar quality. We worked closely with the Technical 
Advisory Committee economists and the Survey Implementation Committee 
to develop methodologies for the rental equivalence and hedonic 
regression processes.
    We contracted for the services of a company with experience in 
rental data collection to survey rental properties in the Alaska and DC 
areas in 2006. We employed hedonic regression analysis to the rental 
data to compare rents in Anchorage, Fairbanks, and Juneau with rents in 
the Washington, DC, area. Section 5941 of title 5, U.S. Code, requires 
that we use the DC area as the basis for comparison; therefore, we 
cannot consider costs in other areas of the country.
    As with other expenses, we recognize that shelter costs may 
increase in the COLA areas and/or the DC area between surveys. We 
conduct rental surveys with our price surveys in each COLA area every 3 
years on a rotating basis according to the schedule agreed upon in the 
Caraballo settlement. As noted previously, we adjust area price indexes 
in non-survey years based on the relative change in the CPI for the 
COLA area compared with the CPI for the Washington, DC area. To the 
extent housing prices change as a result of reduced availability or for 
other reasons, these adjustments will account for any such price 
fluctuations between surveys.
    One commenter asked how we applied the data element ``exceptional

[[Page 65245]]

view'' in the survey of rental units in Alaska, where good views are 
typical. Appendix 4 of the Alaska Survey Report describes the 
``exceptional view'' data element as a ``view of a park, ocean, 
mountain, valley, golf course, etc., that is unusually beautiful for 
the area and may increase the rental value of the property.'' The 
description notes that properties with direct access to these features 
are not surveyed. In the 2006 survey comparisons, we used six rental 
properties in Alaska that were considered to have an ``exceptional 
view'' relative to the area.

Air Travel

    Several commenters noted the high cost of air travel from the 
Alaska COLA areas to areas in the continental United States. The 
commenters requested that we consider excessive travel expenses arising 
from the lack of airline competition, increasing airfare rates, and 
area remoteness. The COLA methodology takes travel expenses into 
account in two ways. First, we compare the cost of air travel from the 
various COLA areas to common destinations in the contiguous States with 
the cost of air travel from the DC area to those same destinations. 
Second, as noted previously, we add to the overall price index for the 
COLA area an adjustment factor that reflects differences in need, 
access to and availability of goods and services, and quality of life 
in the COLA area relative to the DC area. This adjustment factor is 
designed to address considerations such as air travel that arise as a 
result of limited access and limited availability in the COLA areas.

Taxes

    Two commenters expressed concern over high property-tax rates. 
Another commenter said we were reducing COLA rates at the time when 
taxes are increasing in Anchorage. Property taxes are an expense owners 
consider in setting rent; therefore, the rental equivalence methodology 
captures differences in property tax rates. Because of the complexity 
involved, we do not attempt to determine the aggregate tax liability 
for employees in the COLA areas and the DC area for comparison 
purposes. Employees in all areas have varying tax obligations depending 
on income, dependents, deductions, and other factors. In the DC area, 
employees pay a State income tax (Virginia and Maryland), city income 
tax (DC), local income tax (Maryland counties), personal property tax 
(Virginia counties), sales tax, and meals (restaurant) tax, among 
others. The extent to which the total tax burden may be higher in a 
COLA area than in the DC area is covered by the adjustment factor we 
add to the price index for each COLA area pursuant to the Caraballo 
settlement agreement.

Rate Preservation

    Two commenters believed it to be a breach of contract for the COLA 
rate to be reduced from the 25 percent rate in effect when they 
accepted positions in Alaska. As noted previously, 5 U.S.C. 5941 
requires that nonforeign area COLAs be based on differences in living 
costs between the allowance areas and the DC area. These differences 
vary over time, and we must adjust rates accordingly. We have not 
represented the COLAs as being non-changing, although litigation and 
legislation have barred reductions in the past. With the settlement of 
the Caraballo litigation, there is no longer a bar on reducing COLA 
rates. Because our surveys indicate that living costs in the Alaska 
survey areas no longer support a COLA rate of 25 percent, we must 
reduce the COLAs for Anchorage, Fairbanks, and Juneau in accordance 
with law.

Executive Order 12866, Regulatory Review

    This rule has been reviewed by the Office of Management and Budget 
in accordance with Executive Order 12866.

Regulatory Flexibility Act

    I certify that this regulation will not have a significant economic 
impact on a substantial number of small entities because the regulation 
will affect only Federal agencies and employees.

List of Subjects in 5 CFR Part 591

    Government employees, Travel and transportation expenses, Wages.

Office of Personnel Management.
Michael W. Hager,
Acting Director.

0
Accordingly, OPM amends subpart B of 5 CFR part 591 as follows:

PART 591--ALLOWANCES AND DIFFERENTIALS

Subpart B--Cost-of-Living Allowance and Post Differential--
Nonforeign Areas

0
1. The authority citation for subpart B of 5 CFR part 591 continues to 
read as follows:

    Authority: 5 U.S.C. 5941; E.O. 10000, 3 CFR, 1943-1948 Comp., p. 
792; and E.O. 12510, 3 CFR, 1985 Comp., p. 338.


0
2. In Sec.  591.207, revise paragraphs (a), (b), and (c) to read as 
follows:


Sec.  591.207  Which areas are COLA areas?

* * * * *
    (a) City of Anchorage, AK, and 80-kilometer (50-mile) radius by 
shortest route using paved roads when available, as measured from the 
Federal courthouse to the official duty station;
    (b) City of Fairbanks, AK, and 80-kilometer (50-mile) radius by 
shortest route using paved roads when available, as measured from the 
Federal courthouse to the official duty station;
    (c) City of Juneau, AK, and 80-kilometer (50-mile) radius by 
shortest route using paved roads when available, as measured from the 
Federal courthouse to the official duty station;
* * * * *
0
3. Revise appendix A of subpart B to read as follows:

Appendix A to Subpart B of Part 591--Places and Rates at Which 
Allowances Are Paid

    This appendix lists the places approved for a cost-of-living 
allowance and shows the authorized allowance rate for each area. The 
allowance rate shown is paid as a percentage of an employee's rate 
of basic pay. The rates are subject to change based on the results 
of future surveys.

------------------------------------------------------------------------
                                                              Allowance
                    Geographic coverage                          rate
                                                              (percent)
------------------------------------------------------------------------
State of Alaska:
    City of Anchorage and 80-kilometer (50-mile) radius by            23
     road..................................................
    City of Fairbanks and 80-kilometer (50-mile) radius by            23
     road..................................................
    City of Juneau and 80-kilometer (50-mile) radius by               23
     road..................................................
    Rest of the State......................................           25
State of Hawaii:
    City and County of Honolulu............................           25
    Hawaii County, Hawaii..................................           18

[[Page 65246]]

 
    County of Kauai........................................           25
    County of Maui and County of Kalawao...................           25
Territory of Guam and Commonwealth of the Northern Mariana            25
 Islands...................................................
Commonwealth of Puerto Rico................................           13
U.S. Virgin Islands........................................           25
------------------------------------------------------------------------

 [FR Doc. E8-26141 Filed 10-31-08; 8:45 am]
BILLING CODE 6325-39-P